One chart to rule them all

Very simple blog today, folks. In fact, some of you may think this one “too basic”. But often its the simple stuff that is most important. We’re going to look at the DJIA since 1900. That’s over 120 years of price action! I’ve drawn a trendline representing the general bull market since the 1929 crash. Lets look at a few things on this simple chart:

First: note that the DJIA tends to correct itself back to this longer termed trendline when it moves too far afield.

  • Those corrective moves back to the trendline can be a multi year pullback like in the late 1930’s – 1940.
  • The correction can be sideways, as it was in the 1965-1982 period….and 1999- 2009
  • They can be a sharp move back to the trendline -such as in 2009 after the “lost decade” of sideways market noted in point 2.

 

I pose a simple question surrounding this simple chart to you, the good readership. 

Please comment below (subscribers, please go to the website to comment, do not hit reply on your emailed copy of the blog). I am curious as to your feelings surrounding this market, and a potential return to the trendline.

Do you think (pick one):

  1. The DJIA will pull back over a few years, like in the late 1930’s, to meet the trendline?
  2. The DJIA will trade sideways for many years (aka 10+ years) like in the 1965-82 or 1999-2009 period – to finally meet the trendline?
  3. The DJIA will not retest this trendline. Its a new era, and a new trendline should be drawn to illustrate a sharper upward trajectory?
  4. The DJIA will experience a rapid crash, much like it did at the end of the 1999-2009 period?

I’ll be curious to hear your thoughts. This is all for kicks and giggles. Recall that you cannot predict, you can only prepare for any outcome. But I think it will be interesting to hear your consensus. We have a 4000-5000 individual readers of each blog between subscribers and drop-in readers – so I’m hoping to hear from a few of you.  I do consider my readers to be in the more informed side of the Smart/Dumb money mixture, BTW.

I’ll do a headcount and post the results next blog.

Keith

51 Comments

  • I think it could be like #4 but lasting less than half the time. I believe it could be a rapid crash with a rapid recovery.

    Reply
  • I tend to think it could have a rapid crash, then a rapid recovery, and afterwards go sideways for at least 10 years.

    Reply
  • 5. Buy a lottery ticket.

    I’m about as lucky to win the lotto as I am about predicting correctly.

    🙂

    Reply
    • Good point. Which is my point, as always. Don’t predict, DO prepare for ANY outcome. Still, its fun to play the guessing game for kicks n’ giggles.

      Reply
  • I’ll throw my dart at “2” with a lot of sideway action, but an overall trend of up about 5% per year. Way more money to be made swing trading or selling covered calls, than buy & hold.

    Reply
  • I would think 1,,,,,,however 3 has all the mo-jo to happen,,, can you see pubic fed and prov and muni top employess pay drop from 200k ? houses go back 100k,,,,,, did you ever dream that stocks selling for500 a share,, home dept cosco etc 100 to 200 for a meal for 2 a kid if wanted to could save easy in summer 2000 or 3k and buy 5 shares home dept and I dont think teck is through I remember well gold at 32 an once and how I missed the boat….the # of stocks in the last 15 to 20 years that have thrown the dow out of wack [stock splits] people bought a board lot 100 shares of s blue chip stock and i wondered how they were able to do that now its a 1000

    Reply
  • 2. But I think it has more to do with a contraction in the money supply and the inevitable hangover from the liquidity that’s still sloshing around in the system than technical analysis.

    Reply
  • 2, instead of a pure crash because today you have a lot of Governments/Agencies tools to protect people and corporate wealth. They don’t let the economy crash.
    So you get a trigger event. Market crashes a little. And then governments comes to the rescue.

    Reply
  • Is this a Logarithmic chart? If not it may tell a different story.

    My belief is #2

    Reply
  • The Dow will revert to the trend line. If it goes up at an angle to meet the trend line, there may be a topping pattern. If it goes sideways to meet the trendline we’ll be off to the races eventually. The last possibility is it angles downward to intersect the trend line. If this happens we will chop in a lower range for awhile.

    Reply
  • Hi Keith, interesting blog today as always… it seems unlikely that a new trend line is necessary, I believe the DJIA will pull back over a few years, like the late 1930’s, and meet the trendline.

    Reply
  • i think we are in a period similar to the run up to 1987 – the vietnam war had ended and inflation was running hot – people didnt really know what inflation was
    i was 30 i am 67 (may 29 th ) now
    i live in farming country along the north shore of lake ontario
    farm land went from 100 dollars an acre to 1000 dollars an acre over a period of years – things are happening faster now
    during this time most small businesses closed most small farms closed
    there was no money – i was never out of work – 3 kids – one income -i would put my cheque in the bank and my account would be overdrawn –
    the stock market was running hot and i was buying call options on the OEX – didnt really know what these were
    but every day i would walk to the corner store and buy a copy of the globe and mail
    and laugh at the amount of money i had made – doing nothing – this worked until august of 1987 -all of a sudden this wasnt working – in october i was wiped out
    so – the democrats wont crash the economy but the republicans will – so if trump is elected – look for the turn – august of 2025 and the wipe out oct 2025
    so hope i am wrong but
    all my relatives in the US have 30 year mortgages at 3 percent – they dont care if rates go up
    the US always has 2 parts to their policies – part 1 is to help their markets
    part 2 is to hurt the rest of the world – as they export their inflation
    we have a clown running this country – so we are in trouble
    have you got all your teeth – i dont i have been punched in the mouth before
    so advice from my hockey playing days – keep your head up

    Reply
    • Good history lesson – we are not too far apart in age…I can relate. Thanks Bob

      Reply
  • I pick 5. A rapid crash worse than any thing in modern history. It will be fuelled by a devalued Americanski dollar and debt write down. The money printing and debt service costs is unsustainable.

    Reply
  • Hi Keith,
    What is your take on the weekly chart of the S&P 500? I am focusing on the two doji candlesticks, one lower than the previous.

    Reply
    • You are paying attention! Yes, 2 doji’s, meaning investor indecision and possible reversal. Overbought momentum indicators. Way above the 200 day SMA.
      Hmmmmmm….trouble may be afoot!

      Reply
  • No. 4 for me. The other 3 assume that there is a continuation of the existing and/or no market interference through the Fed etc. A black swan (or at least a dark grey one) is the most likely scenario to force markets back to the norm.

    Reply
  • First, if you want comments posted on your website you should post a link when you make the request so that I don’t have to go search for it (I’m old and my faculties are declining). As to your question, I think a good argument could be made for “3. The DJIA will not retest this trendline”.

    Reply
  • Number 4. The DJIA will experience a rapid crash, much like it did at the end of the 1999-2009 period? And then go sideways as in 2000 to 2009.

    Reply
  • do you think (pick one): #2

    The DJIA will pull back over a few years, like in the late 1930’s, to meet the trendline?
    The DJIA will trade sideways for many years (aka 10+ years) like in the 1965-82 or 1999-2009 period – to finally meet the trendline?
    The DJIA will not retest this trendline. Its a new era, and a new trendline should be drawn to illustrate a sharper upward trajectory?
    The DJIA will experience a rapid crash, much like it did at the end of the 1999-2009 period?

    Reply
  • Given too many foolish people voted for incompetents like Trudope ( I mean Trudeau), Trump, Xi, etc … we’re stuck with their inflationary, devicive & industry killing policies!
    Unfortunately, this means years of pain & increasing Legalized Theft ( taxes) are coming.
    This likely means we’ll see #1 at first, and then #2. to follow.

    Reply
  • I like number 4. Too much money sloshing around for a sideways move but lots of black swans on the lake.

    Reply
  • Markets seem to have a major event every 10 years or so and a minor pullback every few years. It seems we have a few more years of runway before a major crash. I would expect the “regular” pullbacks of 5-10% to happen every year or so therefore I’m going to go with #3.

    Reply
  • My vote is #4.
    In the Fall, if polls suggest a Trump election win, markets will sell off.

    If Trump ultimately looses, will civil war occur? Markets will crash is that happens.

    Either way, Markets won’t like the uncertainty and will likely sell off in the fall as the US heads to their November presidential election.

    We’ll see! Pure speculation. Will watch and wait to see how things unfold.

    Reply
    • Do keep in mind that when Trump was elected in Nov 2016, the market took off in 2017 parabolically and didn’t look back. He is not necessarily bearish for the market, certainly not last time he was President!
      I was reading a research report on Biden vs Trump sectors that would benefit; I may do a blog on its discussions

      Reply
      • I hear what you are saying; however, his rhetoric is too extreme and violent now.
        Abandoning NATO, and our allies. NATO’s world leaders are already very concerned, and will lose total confidence in the US being in alliance with them if Trump gets in. Going after his political opponents in the US is also very concerning.
        Releasing the Jan. 6th “hostages”on day one.
        Creating camps for immigrants.
        He outright states that he will be a dictator. Those left under him who aren’t part of the Trump cult will do their best, but chaos will ensue.
        So, it’s a completely different scenario this time than when he was elected in 2016.
        Anyway, that’s my view at the moment. Everyone has their own take on how it might play out.

        Reply
        • And the other guy is suffering from dementia, basic intelligence, and a lack of morality. Sounds like no matter which way it goes, its gonna be a sh*t show.

          Reply
  • My thinking is the next recession will bring us about half-way down to your trendline, and then the central bankers will bail us out again so they don’t lose their jobs.

    Another question on my mind – If you draw a top resistance line, it would nearly touch today’s price. Is anyone concerned that we’re up against a 100-year resistance line?

    Reply
    • Yes, that’s part of the issue and I have drawn that upper line on past blogs–this is known as a channel
      Did you want to “pick a number”?

      Reply
  • 2. DJIA will trade sideways, but for less than 5 years (current markets continue to move faster than historical averages). It won’t ever actually touch the trendline.

    Reply
  • #5 (none of the above)

    The line, in my opinion, should be a bit higher but at the same angle. We haven’t seen the slightly more parabolic type patterns of the late-1950s or the mid-1990s. The DJIA has been muted, compared to the NASDAQ and the S&P500. My bet is that is has a couple more years to run up before moving sideways for several years. Of course there will be pullbacks, but my bet is that both the NASDAQ and the S&P500 pull back more than the DJIA.

    Reply
  • #2 – at least for a while

    I don’t think we’ll have a major bear market until the 2030s based on very favourable demographics of US millenials (a large generation) entering their highest consumption period of buying their first cars and homes, and having kids (Canadian millenials will be lucky if they can afford heat and gas, so I don’t think we’ll have too many babies). The reshoring trend has also proven quite stimulative to the economy as manufacturing facilities and supply chains are rebuilt domestically. Finally, the $5-6 trillion in fiscal spending through the Infrastructure, Chips and Inflation Reduction Acts will keep the economy and markets humming for another few years.

    Ultimately, every index gets hit HARD in the 2030s when we’ll be due for another long secular bear market. That event will do a lot to pull the DJA back to the long-term trendline. Until then, I think it’ll rise modestly and we’ll likely see better returns in the mid-caps, Nasdaq, S&P 500, and international markets.

    My 3 cents (you know, inflationary effects).

    Reply

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